Dollar Gains as Fed Rate Hike Chances Plummet
The US dollar saw a weekly gain despite weakening slightly on Friday, as subdued US inflation data reduced expectations of a Federal Reserve interest-rate hike in the near term.
Data released on Thursday showed that US producer prices were unexpectedly flat in July, adding to evidence that inflationary pressures were moderating. The consumer price report showed headline CPI rose 3.4% year-on-year in July, while core CPI eased to 2.5%. As a result, markets now see only about a 35% chance of a Fed rate increase at the September meeting, down from 55% a week earlier.
The shift in rate expectations has provided some support for risk-sensitive Asian currencies, although the moves remained modest as investors continued to monitor developments in the Middle East. US Defense Secretary Pete Hegseth said on Thursday that the US military could sustain a naval blockade of Iranian ports indefinitely, part of President Donald Trump’s strategy to maintain economic pressure on Tehran.
The escalation comes as shipping through the Strait of Hormuz remains severely disrupted, with oil prices set for a 4% weekly jump. This adds to inflation concerns and limits the boost Asian currencies might otherwise have received from the softer US data.